Top Loss Prevention Trends

CAMICO Loss Prevention specialists share top trends emerging from conversations with policyholders.

Reprinted by permission from CAMICO.

A: Collections can be one of the most difficult parts of practice management for CPAs. Even when the work was performed timely and with due care, unpaid fees can create stress, consume time, and increase the risk of a dispute.

From a risk management standpoint, the goal is usually simple: get paid while minimizing the chance that a fee issue turns into a professional liability claim. One of the best ways to reduce collection problems is to address payment expectations before the work begins. Engagement letters should clearly explain fee terms, billing practices, late-payment consequences, stop-work provisions, disengagement rights, and any mediation or fee arbitration process. Retainers can also help reduce the risk of nonpayment and may prevent the firm from having to pursue more formal collection efforts later. CAMICO’s guidance emphasizes that firms should bill on a timely basis and avoid allowing unpaid fees to build up to the point where the firm feels it can no longer walk away.

Before taking any escalated collection action, the CPA should review the engagement letter and their professional liability policy. The engagement letter may address payment terms, late charges, mediation, arbitration, attorney’s fees, or the client’s responsibility for collection costs. Just as importantly, the CPA should confirm whether their professional liability policy includes an exclusion for suit for fees and/or requires advance consultation. A CPA should not assume that every policy treats fee collection the same way.

As a practical matter, suing for fees is often not the best first option. CAMICO’s claims experience has shown that suing to collect fees can create a high probability of a countersuit by the client, often alleging malpractice. What started as an unpaid invoice can quickly become a professional liability matter. That is a lot of stress and pain for a receivable. CAMICO also recommends considering that the legal fees, reputational risk, lost billable time, and overall cost of litigation often outweigh the fees owed.

For that reason, many CPAs are better served by using practical, business-minded resolution strategies before escalating the matter. In many cases, it may make sense to write off part of the balance in exchange for a prompt lump-sum payment. A discounted settlement can be a good result if it closes the file, gets cash in the door, and avoids the cost and risk of prolonged collection efforts. From a risk management standpoint, collecting a substantial portion now may be far better than spending months chasing the full amount while increasing the chance of a claim.

Another effective strategy is to offer a payment plan. Some clients are not refusing to pay; they simply may not have the cash flow to pay the full amount at once. A short, written payment plan with clear due dates can improve the chances of recovery while preserving the relationship. The agreement should be documented carefully so there is no confusion about the remaining balance, timing, or consequences of missed payments.

If the amount owed is more significant, such as over $5,000, the CPA may want to consider whether the engagement letter includes a binding arbitration clause for fee disputes (which is standard language in CAMICO-crafted engagement letters). CAMICO generally views mediation as useful for all disputes and binding arbitration as potentially effective for fee disputes only. Additional risk management resources are available on CAMICO’s Members-Only Site in the General Risk Management Resource Center under Fees and Collections.

Throughout the process, communications should remain professional, factual, and non-escalatory. Collection emails and letters should avoid accusatory language and should not overstate the firm’s rights. The CPA should document the history of invoices, prior reminders, and client responses. Clear documentation and carefully limited language matter in all client communications. Also, please note that if the client begins asserting that the work was wrong, incomplete, or caused damage, the matter should be referred to CAMICO as soon as practical.

Overall, collections for CPAs should be approached as a risk management issue, not just an accounts receivable issue. The best collection strategy starts before the invoice is overdue: clear engagement letter terms, timely billing, retainers when appropriate, stop-work provisions, and good client communication. Once a balance becomes significantly delinquent, consider practical resolutions such as a discounted lump-sum payment or a written payment plan before escalating. In many situations, getting paid something promptly and closing the matter carries far less risk than fighting over every dollar.

A: CAMICO receives numerous disengagement-related calls from CPAs wanting to disengage from problematic clients that are often difficult and uncooperative, don’t take the CPA’s advice, and/or constantly question the firm’s value. With approximately 70% of CAMICO’s claims originating from tax-related matters, addressing and managing the risk stress points associated with problematic tax clients can significantly improve a firm’s risk profile. There is no better time than now, before the final phase of tax season, to take proactive steps to better position the firm to ensure you are maintaining the right overall firm/client fit. But don’t wait too long — it is important to ensure that you allow these clients adequate time to find a successor professional, or you could face risks associated with potential delay damages in the event of a successor’s inability to complete the outstanding work before its deadline.

Once you realize a client relationship should end, do it right and disengage in writing, but after you have laid the groundwork. CAMICO recommends communicating verbally, if possible, prior to sending a disengagement letter, especially for clients who have been with you for many years. Recognize that it may be awkward, but this step will typically help to smooth the transition; you can explain your reasoning, listen to the client’s perspective, and be empathetic, but stick to your guns with respect to your decision. During your conversation, it is important to be professional, not emotional. It can be cathartic to colorfully detail your reasons for disengaging but be mindful that your openness can have consequences. Experience has shown that letting clients down gently typically results in the quickest and least eventful parting of ways.

Shortly after your disengagement conversation, memorialize your conversation with a written communication. While email is the fastest alternative, it is important that you send your disengagement notification to your client via a mechanism that provides a return receipt or other proof of delivery. Certified mail has historically been the preferred mechanism, but some parties (expecting news they don’t wish to accept) decline to sign an acknowledging receipt. If you opt to send the communique via email, and your client does not reply via email, follow up with a mechanism that provides proof of delivery.

At a minimum, your written disengagement notice should clearly state the effective date, note any upcoming deadlines or filings, address any outstanding balance, explain how client records will be handled, encourage the client to retain a new CPA or other professional promptly, and, when appropriate, describe your cooperation with a successor to facilitate a smooth transition.

By recognizing when a client relationship is no longer a good fit and executing a structured, professional exit, firms can protect their reputation, mitigate risk, and focus their resources on clients who align with their standards and values.

For more information on this topic or to access disengagement letter templates, refer to the Engagement Letter Resource Center on CAMICO’s Members-Only Site. CAMICO’s Loss Prevention Specialists are also available to discuss your specific client situation and can help guide you on best practices for navigating the disengagement process.

A: When making the determination to allow an employee to work from home, firm management should consider several factors. First and foremost, does the firm have an already established policy and is the policy followed consistently? If there is no written policy, has a precedent been set in practice? Consistency is the key to avoid the perception of favoritism.

Management must consider whether or not the job can be done full or part-time in a remote setting. Is there the possibility that remote work for a particular position could have a negative impact on co-workers, clients, other stakeholders, or operations? Not every position is suited for remote work and the decision to allow or disallow should be based on objective criteria and legitimate business reasons.

Once factors related to the actual position are considered, the focus then should be on the individual doing the work. Remote work requires discipline and not every employee will excel in a remote environment. Past records regarding attendance, performance, and responsiveness should all be taken into consideration.

Communication; clear, objective policy language; and consistency are the keys to a successful program. Policy language should reflect clear guidelines and allow for management discretion when needed. If there are concerns or doubts about an individual succeeding or a position being supported in a remote environment, a trial run can also be an option, provided there is clear direction, feedback and overall communication. Seeking guidance from an employment attorney or employment risk advisor is always advisable prior to implementing a program.

Additional employment practices information is available on the Members-Only Site under the General Risk Management Resource Center.

A: Possibly, but a tax-only firm should proceed carefully before agreeing to prepare or provide financial statements to a client by ensuring you fully understand the nature, scope, and applicable standards related to such services, especially when the statements may be shared with a third party.

Because the firm currently provides only tax services, it is likely not currently subject to peer review or the AICPA’s Quality Management Standards. That shapes this acceptance decision. If the firm agrees to perform a preparation engagement under the Statements on Standards for Accounting and Review Services, commonly referred to as SSARSs, the engagement would not, by itself, subject the firm to peer review. However, it would subject the firm to the Quality Management Standards.

The Quality Management Standards would require the firm to design, implement, and operate a system of quality management. That system must address quality objectives, quality risks, responses to those risks, assignment of responsibilities and accountability, and monitoring. The Quality Management Standards became effective for systems of quality management on December 15, 2025. A firm that performs services subject to those standards, including a tax-only firm that later begins performing preparation engagements, must design, implement, and operate a system of quality management.

A firm that has not previously performed financial statement services has little reason to be familiar with those requirements, and that unfamiliarity is itself a risk. If you wish to explore this further, refer to, “Be Prepared: The Quality Management Standards Are Coming” in IMPACT 126 and the article, “Risk Management in the New Quality Management Era: Practical Lessons for CPA Firms”.

For that reason, CAMICO recommends that tax-only firms not view a client’s request for financial statements as merely a matter of finding a suitable engagement letter. The firm should first consider the broader standards, firm practice, and risk management implications of accepting the work. The firm should first determine whether it is prepared to perform a service subject to the SSARSs and design, implement, and operate a system of quality management, as required by the Quality Management Standards. And, if the requested service were to expand beyond preparation into compilation, review, or audit services, the firm would become subject to peer review.

If the only financial statement services the firm performs are preparation engagements, it would not be subject to peer review solely for that reason. However, the firm would still need to comply with the Quality Management Standards.

If the firm is not subject to peer review and does not want to take on the quality management obligations mandated by the traditional financial statement services (audit, review, compilation, and preparation engagements), the firm should consider whether the SSARS 27 consulting exception to the SSARSs might apply.

SSARS 27, issued April 7, 2025, clarified the applicability of AR-C Section 70 by introducing a narrow exception for financial statements prepared as part of a consulting services engagement. Refer to, “SSARS 27 — A Changing Risk Landscape for Client Advisory Services” in IMPACT 126 and the article, “SSARS No. 27: Helpful Guidance, but Misunderstood”.

Whether SSARS 27 applies depends on the engagement’s primary objective, which is not a matter of labeling but instead, is a substance-over-form determination grounded in the scope of services, the deliverables, and the client’s expectations. In this scenario, the client has requested financial statements for a third party’s use. Since the objective of the additional services desired by the client is to generate financial statements, the requested service does not meet the SSARS 27 consulting exception; accordingly, AR-C section 70 applies. An AR-C 70 preparation engagement may avoid peer review but would subject the firm to the Quality Management Standards.

In short, a tax-only firm may be able to assist a client that requests financial statements, but the firm should tread carefully to understand, document, and comply with the applicable standards of care appropriate for the services to be performed.

A: Maybe. Requests for third-party “comfort” or “income verification” letters do require a great deal of professional judgment as you traverse the delicate balance of trying to control your risks while managing client and third-party expectations. Since professional standards do not require CPAs to provide any letters to third parties, firms need to assess what are the risks of saying “no” (e.g., losing the client, being sued by the client) versus the risks of saying “yes” (e.g., falling below the professional standard of care).

In this scenario, the first step is to evaluate whether the third party’s requirements for the income verification letter are clear and appropriate for you to respond to in accordance with your professional standards. For example, information pertaining to the client’s income in the future or period(s) beyond which services have been performed is inappropriate for the firm to provide as part of such a letter.

Communication with the client regarding your professional standards is an important next step so that you can clarify expectations. You may need to explain that professional standards prohibit the firm from offering any form of assurance regarding matters of solvency, as well as prohibit firms from providing assurance regarding a client’s financial position when the requisite scope of services hasn’t been performed. By helping to educate your client you can come to some mutual understanding with respect to what the firm can do, if anything, to satisfy that third-party verification request.

If you deem it appropriate for the firm to respond to the request, and have the requisite client consent to do so, document only the facts, and be sure to clearly spell out the scope and limits of the services the firm has rendered to the client. Refrain from speculation or comments regarding future events and avoid making conclusions that were not part of the services rendered to your client. And never make assurances regarding the accuracy or completeness of the information provided unless the scope of your services enables you to provide such assurances. Depending on the nature of the request, it may also be prudent to include reference to the third party’s responsibility to perform their own independent procedures and tests they deem necessary to make their determination. In order to avoid potential privity issues, the letter should also clearly state that the CPA’s response is not intended to establish a client relationship with the third party.

For more information on this topic or to access letter templates, refer to CAMICO’s Members-Only Site.